Today Markets Analysis

The South Korean won weakened toward 1,380 per U.S. dollar, hitting a three-week low as a fresh Federal Reserve rate hike, hawkish U.S. monetary guidance and continued foreign selling of Korean assets combined to increase demand for the dollar.

The move puts USD/KRW firmly back in focus as traders reassess the interest-rate differential between the United States and South Korea, while elevated oil prices add another layer of pressure for an economy heavily dependent on imported energy.

The Federal Reserve raised its policy rate by 25 basis points to 3.75%-4.00% on September 16, its first rate increase since 2023. The Fed said inflation remains elevated and indicated that monetary policy may need to remain restrictive as it works toward its 2% inflation objective.

The Bank of Korea, meanwhile, raised its benchmark rate to 3.00% in August, meaning the U.S.-Korea policy-rate differential is now between 75 and 100 basis points depending on the point within the Fed’s target range used for comparison.

South Korean Won Market Snapshot

Fed Rate Hike Reignites Dollar Advantage

The immediate catalyst for the won’s decline was the Federal Reserve.

The FOMC raised the federal funds target range by 25 basis points to 3.75%-4.00%, while its statement noted that inflation remains elevated.

For currency markets, the important issue is not simply that U.S. rates are higher than Korean rates. It is the possibility that the differential remains wide for longer.

Higher U.S. yields can increase the relative attractiveness of dollar-denominated assets, particularly when investors are simultaneously reducing exposure to higher-risk assets elsewhere.

That dynamic is especially important for the Korean won because Korea’s financial markets have substantial foreign participation.

The latest move therefore represents more than a simple reaction to one Federal Reserve decision. It reflects a broader repricing of relative monetary policy, global yields and risk appetite.

Foreign Investors Add Another Layer of Pressure

Foreign selling has become a significant additional headwind for the won.

Foreign investors sold almost ₩12 trillion ($8.5 billion) of Korean shares over six consecutive sessions through September 16, according to Seoul Economic Daily, reversing the buying seen earlier in September.

The selling continued into Thursday, with foreign investors again remaining net sellers of KOSPI shares.

This matters for USD/KRW because foreign investors selling Korean equities typically need to manage the currency exposure associated with those transactions.

At the same time, the broader picture is not uniformly negative. Bank of Korea data showed that foreign investors actually became net buyers of South Korean stocks in August, purchasing approximately $400 million after selling $20.7 billion in July.

That contrast highlights an important point: the current pressure appears to be a recent reversal in foreign positioning, rather than evidence of a continuous one-way withdrawal from Korean markets.

Oil Prices Create a Second KRW Problem

The won is also sensitive to developments in crude oil because South Korea is heavily reliant on imported energy.

Brent crude remains above $100 a barrel, although prices have recently retreated from their highs as Saudi Arabia offered additional crude cargoes to Asian buyers through Oman.

U.S. Energy Secretary Chris Wright also said Saudi Arabia’s damaged East-West pipeline could be operational again within days, although other estimates have suggested repairs could take substantially longer.

For South Korea, lower crude prices would be an important positive because they reduce the dollar cost of energy imports.

The problem is that oil remains historically elevated despite the latest pullback.

Consequently, the won is facing a complicated combination of stronger dollar conditions and elevated energy costs.

Why the Oil Relief Matters for South Korea

The relationship between oil and the won is particularly important.

When crude rises sharply:

Higher oil prices → larger energy import bill → greater demand for dollars → potential pressure on KRW

Conversely:

Lower oil prices → reduced import costs → lower dollar demand → potential support for KRW

That makes the recent decline in crude prices a potential stabilising factor for the won.

Reuters reported Brent at around $105.64 per barrel on September 17, with WTI around $102.10, after prices fell by roughly $3 the previous day. Saudi Arabia’s additional crude shipments helped reduce immediate fears of a deeper supply disruption.

However, the oil market remains highly sensitive to geopolitical developments, meaning the currency market cannot assume that the recent decline will necessarily persist.

Bullish Sentiment for the South Korean Won

There are several factors that could limit further KRW weakness.

1. Bank of Korea Has Already Tightened

The Bank of Korea is not operating from an extremely loose monetary-policy position.

It raised the benchmark rate from 2.75% to 3.00% in August, its second consecutive increase. The central bank said inflation remained above target for a prolonged period and highlighted financial-stability risks.

That leaves the possibility of further Korean policy tightening if inflation and financial stability concerns persist.

2. Oil Has Started to Retreat

The recent decline in crude prices is potentially positive for Korea’s external energy position.

Saudi Arabia’s offer of additional crude cargoes has eased some immediate supply concerns, while expectations that the East-West pipeline could resume operations have also helped reduce the market’s most acute supply fears.

3. Korean Export Fundamentals Remain Important

South Korea remains deeply integrated into global technology and semiconductor supply chains.

The Bank of Korea has described exports and investment as important drivers of economic growth, while also highlighting robust AI investment as a source of support for the broader Asian technology supply chain.

A strong export cycle can ultimately provide foreign-currency earnings that help offset some of the pressure created by imported energy costs.

Bearish Sentiment for the South Korean Won

The immediate risks remain concentrated around the dollar, capital flows and energy.

1. The U.S.-Korea Rate Differential

The Fed’s new 3.75%-4.00% target range is materially above South Korea’s 3.00% policy rate.

If U.S. rates remain elevated while the Bank of Korea pauses, the relative yield advantage of dollar assets could continue attracting capital toward the United States.

That creates a persistent fundamental headwind for KRW.

2. Foreign Selling Is Intensifying

The six-session foreign selling streak is particularly important.

Nearly ₩12 trillion of Korean equities was sold by foreign investors during that period, while selling continued into September 17.

If the selling extends, it could maintain upward pressure on USD/KRW.

3. Oil Remains Above $100

Even after the recent decline, Brent remains above $100.

That means South Korea’s energy-import exposure remains a significant currency risk.

Any renewed disruption to Saudi exports or regional shipping routes could quickly reverse the recent decline in crude and increase pressure on the won.

4. Strong Dollar Momentum

The Fed decision has strengthened the broader dollar narrative.

Asian currencies came under pressure following the rate increase, with markets reassessing the outlook for U.S. monetary policy and global borrowing costs.

For USD/KRW, this means that even if Korean fundamentals remain relatively solid, the exchange rate can still move higher simply because of broad-based dollar demand.

What Traders Are Watching Next

The next major variables for USD/KRW are likely to be:

• Further Federal Reserve guidance on the path of U.S. interest rates.
• U.S. Treasury yields and the dollar index, particularly if yields remain elevated.
• Bank of Korea policy expectations following its two consecutive rate increases.
• Foreign equity flows into and out of Korea.
• Brent crude, particularly whether prices remain above $100.
• Saudi oil exports and the restoration of the East-West pipeline.
• South Korean semiconductor and export data, which remain critical to the country’s external balance.
• Global risk appetite, particularly movements in Asian technology stocks.

The critical question for USD/KRW is whether the current move toward 1,380 represents a temporary reaction to the Fed or the beginning of a broader period of renewed dollar strength against the won.

Currency Hedger View

The Korean won currently sits at the intersection of three major currency forces: U.S. monetary tightening, foreign capital flows and energy prices.

The Fed’s move has widened the relative yield advantage of the dollar, while foreign investors have recently accelerated their selling of Korean equities. Both factors are supportive of USD/KRW.

However, the oil side of the equation has become somewhat less negative after Saudi Arabia offered additional crude supplies and expectations emerged that the East-West pipeline could return to service relatively soon.

For businesses with Korean won exposure, the key issue is therefore not simply the current exchange rate but the interaction between USD funding costs, import prices and foreign capital flows.

Currency Hedger continues to monitor these cross-market relationships as part of its focus on foreign-exchange risk and currency hedging.

Today Markets View

The South Korean won is facing a renewed dollar-driven test.

The move toward 1,380 per dollar reflects a combination of the Fed’s first rate hike since 2023, expectations that U.S. rates may remain elevated, heavy recent foreign selling of Korean equities and continued concern over expensive imported energy.

At the same time, the picture is not one-directional.

South Korea’s central bank has already tightened policy to 3.00%, Korean exports remain an important economic support, and the recent decline in crude prices could reduce some of the pressure on the country’s import bill.

Louis Roche, Analyst at Today Markets, said:

“The won is being squeezed from several directions at once. The Fed has strengthened the dollar’s yield advantage, foreign investors have turned back toward selling Korean equities and oil remains expensive. The key variable now is whether those pressures persist simultaneously. A sustained easing in crude prices or a stabilisation in foreign capital flows could change the currency dynamic quickly.”

Bottom Line

The South Korean won has fallen to around 1,380 per dollar, marking a three-week low as the Federal Reserve’s latest rate increase strengthens the dollar and reinforces the yield advantage of U.S. assets.

Foreign investors selling almost ₩12 trillion of Korean equities over six sessions have added another layer of pressure, while Brent crude remaining above $100 continues to complicate South Korea’s energy-import position.

The main potential offsets are South Korea’s own restrictive monetary policy, resilient export fundamentals and the recent easing in crude prices.

For now, USD/KRW remains highly sensitive to the Fed, U.S. yields, foreign capital flows and the next move in oil.

Market analysis contributed by Currency Hedger, an Octalas Group division specialising in foreign exchange, currency risk and hedging.

Analysis by Louis Roche, Analyst, Today Markets

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